Since 1998, the Istanbul Stock Exchange has spent $1 billion building 400 schools across Turkey. Now the Turkish administration is moving to assert greater regulatory control over the exchange. The government passed a decree last month aiming to consolidate the Istanbul Stock Exchange with TurkDex, the country’s derivatives exchange.
This consolidation will create one large multi-asset house. Investors will have added exposure to multiple investment options through the same large exchange. The government is attempting to morph Istanbul into a regional financial center. Turkey’s government feels that the capital markets are currently not as large as the country deserves. With this move the government is anxious to bring their markets into full compatibility with other countries by speeding up the process and combining everything under one structure.
For the Istanbul Stock Exchange, the government’s involvement is well-timed. The two exchanges had been engaged for months in discussions over the ISE taking a controlling stake in TurkDex. The rivalry between the two had made the discussions complicated and unproductive. The Istanbul Stock Exchange believes the exchange will benefit from building alliances with other exchanges in the Balkans and the Middle East. This would allow Investors wishing to access those exchanges to route their orders through the ISE. Foreign investors would be able to overcome the access difficulties that are sometimes encountered when trying to place orders on smaller emerging market exchanges.
Now might be an opportune time to invest in Turkish companies. The combining of the two exchanges will assist foreign investors looking to this region for returns. The iShares MSCI Turkey Market Index (TUR) is consistent where share price is concerned. This makes it a moderate risk for those looking to profit from this newfound ease in Turkish investing. The majority of TUR’s holdings are in the financial sector. The SPDR S&P Emerging Europe Fund (GUR) also provides exposure to Turkey. However, the majority of this fund’s top holdings lay claim to the energy sector.
Turkey is debatable as an emerging market. From an analytical perspective, if it had the transparency of the US economy, it might be considered a developed nation. On some positions, it is somewhere in between. It still has room to grow. Turkey has great ports for trading, and now the government is working to make this country a center of finance for the region. This merging of two large exchanges is a great step toward making this happen. Turkey also has great land and mineral resources. It is also considered more liberal, and therefore safer, than its more radical Middle Eastern neighbors. From perspectives of Western investors, Turkish investment is is a safe and logical choice.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.